As Wine Sales Plateau, What Categories Will Lead Growth?

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The U.S. wine boom may finally have peaked. The continued growth in wine sales and consumption of the past two decades is now reaching a plateau, as indicated by the findings contained within Silicon Valley Bank's (SVB) 2018 State of the Wine Industry Report.

According to the report, the U.S. is reaching the end of a 20-year growth period. Americans may continue the sort of behavior that has helped both the wine industry and restaurant business gain from the growth in interest in wine. Consumers may continue to move up from entry-level wines to premium brands. But total volume growth in wine sales in the U.S. is beginning to flatten.

The premium wine segment (above $10 per bottle priced at retail) has been growing strongly but will only grow from four to eight percent in 2018, down from an estimate of 10 to 14 percent last year. Value is expected to grow by two to four percent, while volume will inch up only about one percent, according to the report.

"On a dollar basis, restaurant wine sales improved in 2017 over 2016, with total U.S. restaurant wine sales up about two percent in dollars, but down slightly in volume."

"What is obvious,” the report continues, “is that wineries are depending less on sales to restaurants each year, and the larger wineries are more successful than the smaller ones."

The report sees Millennials moving from red blends and introductory wines, while Baby Boomers remain the leading consumers of fine wine even as they drink less as they age.

"There is no question that we are seeing a changing of the guard in premium wine," the report states. "Young consumers are giving blends a chance, and from our view their palate maturation looks like a sequel to the baby boomers' entrance to wine.”

Premiumization is expected per SVB, but a "softening" is likely on the luxury end for wineries without pre-existing strong brands.

"The successful wineries 10 years from now will be those that adapt to a different consumer with different values—a customer who uses the internet in new and interactive ways, is frugal and has less discretionary income than their generational predecessors."

The report also predicts that the red wine boomlet has a predictable life span. "From the consumer perspective, red blends are really the jug wine craze of the 1960s on steroids," but at some point, "the red blend will fade just like Lancers, Mateus and Blue Nun did for the boomer and mature generations before them."

The report also concludes that Oregon Pinot Noir, priced at retail around $15 to $25, limited-production domestics, and premium foreign wines will be growing sharply in the short term.